Download - Forex Presentation-Class3 Rajat
-
8/2/2019 Forex Presentation-Class3 Rajat
1/15
Your Logo
Foreign Exchange
ArithmeticCross Exchange Rates
Session 3
Rajat Vashisht
-
8/2/2019 Forex Presentation-Class3 Rajat
2/15
Cross Exchange Rate
The exchange rate for other currencies are quoted
to customers based on the rates for the currencyconcerned prevailing international foreignexchanges: markets like London, Singapore & HongKong.
These rates are available in terms of US dollar. Theyhave to be converted into Rupees terms quoting tothe customers.
The exchange rate of currencies other than USDollar are Cross Rates.
-
8/2/2019 Forex Presentation-Class3 Rajat
3/15
Buying Rate
The currency for which the exchange rate is to be
calculated as the foreign currency.
The interbank buying rate forms the basis of dollarbuying rate to a customer.
In case of the foreign currency being tendered bythe customer, the bank should first get foreigncurrency converted to US dollars in the internationalmarket.
In other words it has to buy dollars in theinternational market against foreign currency.
-
8/2/2019 Forex Presentation-Class3 Rajat
4/15
Therefore the merchant rate for a foreign currency would be calculated bycrossing the dollar selling rate against the foreign currency in theinternational market and dollar buying rate against rupees in inter bankmarket.
-
8/2/2019 Forex Presentation-Class3 Rajat
5/15
Buying Rate
-
8/2/2019 Forex Presentation-Class3 Rajat
6/15
Question
Times Bank issued a demand draft on Montreal for Canadian Dollar 50,000at CAD 1 = Rs. 32.4850. However, after a few days the purchaser of thedraft requested the bank to cancel the draft and repay the rupeeequivalent to him. (Assuming the CAD were quoted in the SingaporeForeign Exchange market as under:
USD 1 = CAD 1.2541/2561 and the interbank market USD 1 = Rs.39.5275/5350)
How much the customer will gain or lose on cancellation of the draft?Exchange margin on TT buying is 0.08%
-
8/2/2019 Forex Presentation-Class3 Rajat
7/15
Solution
The bank cancels the demand draft at TT buying rate.
US Dollar/Rupee market buying rate = Rs. 39.5275
Less: Exchange margin at 0.08% on Rs. 39.5275 = Rs. -0.0316
= Rs. 39.4959
USD/CAD market selling rate = CAD 1.2561
CAD dollar TT buying rate (39.4959/1.2561) = Rs. 31.4433Rounded off, the rate applicable is Rs. 331.4425
Amount paid by the customer on the purchase of DD for
CAD 50,000 at Rs. 32.4850 = Rs. 16,24,250
Amount received by the customer on cancellation
of DD for CAD 50,000 at Rs 31.4425 = Rs 15,72,125
Loss to customer = Rs. 52,125
-
8/2/2019 Forex Presentation-Class3 Rajat
8/15
Buying Rate
-
8/2/2019 Forex Presentation-Class3 Rajat
9/15
Question
A customer requests the bank to purchase a 30 days sight bill for Swiss Francs 5,00,000.Assuming Rs/USD are quoted in the local interbank market as under:
Spot USD 1 = Rs. 39.2800/2875One Month Forward 1700/1750
Two Month Forward 3500/3550
Three month Forward 5500/5550
And Swiss Frank are quoted in Singapore market as under:
Spot USD 1 = CHF 1.4250/4375
One Month Forward 50/55Two Month Forward 105/110
Three month Forward 155/160
What rate will the bank quote for the transaction provided it requires an exchange margin of0.10%?
Consider also:
Transit period for bills = 25 days
Rate of interest = 10% p.a.
Commission on export bill is Rs. 500
Show the net amount payable to the customer. Rupee amount to be quoted nearest to thewhole rupee.
-
8/2/2019 Forex Presentation-Class3 Rajat
10/15
Solution
The usance of the bill and transit period come to 55 days. In the $/Rs leg, forward dollar is at premium. In this case since dollar buyingrate is reckoned, 55 days will be rounded off to lower period, one month.
Dollar/Rupee market spot buying rate =Rs. 39.28000
Add: Premium for one month + Rs 0.170000
= Rs 39.45000
Less: Exchange margin at 0.1% on Rs. 39.45 - Rs 00.03945
Bill buying rate for dollar = Rs 39.41055
In the dollar/Swiss Francs quote is at premium in this case since dollar selling rate is taken 55 days will be rounded off to the higher period(2 months)
Dollar/frank market spot buying rate =CHF 1.4375
Add: Premium for two months + CHF 0.0110
= CHF 1.4485
Bill buyin rate for Swiss Franc (39.41055/1.4485) = Rs. 27.2078
Rounded off to the nearest multimle of 0.0025, the rate quoted to the cusomter woulds be Rs. 27.2075 per swiss franc.
Amount payable to customer for CHF 500000 @ Rs 27.2075 per franc is Rs 13603750.
Interest recoverable at 10% for 55 days on Rs. 13603750 is Rs 204988.
Net amount credited to customers account:
Value of bill Rs. 13603750
Less: Interest Rs. 204988
Commission Rs. 500 Rs. 205488
Net amount credited Rs 13398262
-
8/2/2019 Forex Presentation-Class3 Rajat
11/15
Selling Rate
When the bank sells foreign exchange (other than
dollar) to the customer, it has to acquire the requiredforeign currency in the international market byselling the equivalent US dollar.
In calculating the merchant selling rate for foreigncurrency, the relevant rates are dollar buying rateagainst the foreign currency, concerned in the
international market and dollar selling rate againstrupee in the inter bank market.
-
8/2/2019 Forex Presentation-Class3 Rajat
12/15
Selling Rate
-
8/2/2019 Forex Presentation-Class3 Rajat
13/15
Question
-
8/2/2019 Forex Presentation-Class3 Rajat
14/15
Solution
-
8/2/2019 Forex Presentation-Class3 Rajat
15/15
Thank You